A Practical Treatise on the Law of Partnership

decree or order of a court of equity (a). If, therefore, the separate creditors elect assignees under a joint commission, the Lord Chancellor will order a new choice (b). But although the separate creditors cannot vote in the choice of assignees, yet if the separate estates are insufficient to pay the separate creditors, the body of separate creditors will be permitted to appoint an inspector of those estates, on the ground that the joint creditors can have no interest in them (c).

The assignees, under a joint commission of bankruptcy, are to keep distinct accounts of the joint and separate estates of the bankrupts; and where there are minor partnerships, the accounts of the respective partnerships must be kept distinct under the general order (d). The joint property of all the partners, and the separate property of each, both, to be sure, pass under such a commission; but they do not form the same fund, and are not to be applied to the same purposes. At law the separate creditor of a partner may take either the separate property of his debtor, or his debtor's share in the joint property, or both, if necessary; and a creditor of the partnership may take the whole joint property, or the whole separate property of any one partner. Under a commission, however, the property seized, whether joint or separate, is no longer disposed of as at law; but, falling immediately under the administration of the Court of Chancery, the effects are subject to a mode of distribution amongst the different classes of creditors, founded as well upon the equity of that court, as upon the general intention of the statutes, that all creditors should have an equal satisfaction. The joint creditors having increased the joint fund, and those who make advances on the separate credit having created the separate fund, natural justice re

(a) Ex parte Parr, 18 Ves. 65. S. C. 1 Rose, 76. Ex parte Hamer, 1 Rose, 321. Ex parte Jepson, 1 Ves. 224.

(b) Id. Ibid.

Madd. 26.

quires, that the funds so constituted shall be applied to the respective demands. It has accordingly been long established as a rule of that court, that where there are different sets of creditors, each estate shall be applied exclusively, in the first instance, to the payment of its own creditors, the joint estate to the joint creditors, and the separate to the separate; and that neither the joint creditors shall come upon the separate estate, nor the separate upon the joint, but only upon the surplus of each that shall remain after each has fully satisfied its own creditors respectively. In conformity to this rule of distribution, separate creditors have never been permitted to come in directly upon the joint estate along with the joint creditors; but as the assignment under a joint commission is of the whole estate, as well of the separate estate of each partner as of the joint estate of all the partners, separate creditors have always been allowed to prove under a joint commission, for the purpose of receiving dividends from the separate estate in the first instance, and afterwards from the surplus, if any, of the joint estate after the joint creditors are satisfied (a). Where there were three firms commencing at different periods, upon the bankruptcy of the firm in which they were all engaged, the Lord Chancellor ordered distinct accounts to be kept of the different partnerships, and of the respective separate estates of the bankrupts (b). But where there have been various partnerships, and a joint commission is taken out against one firm, in which some of the parties were not engaged, there can only be the common order for keeping the distinct accounts of the joint and separate estates (c).

We now proceed to the consideration of what are to be deemed joint, and what separate debts, as regulating the proof against the joint estate under a joint commission. It may be laid down generally, that all debts are proveable against the joint estate for which (a) Cull. B. L. b. 5. c. 3. (b) Ex parte Marlin, 2 Bro. C. C. 15. (c) Ex parte Parker, Co. B. L. 249.

the partnership was liable. Although this was never doubted, a question has arisen as to the right of a creditor to come upon the joint estate, where he has taken a separate security from an individual partner. It is, however, settled, that such a circumstance makes no difference where the credit was originally joint. Thus, where two partners agreed to borrow a sum of money for the use of the partnership, and one of them only gave a bond for securing the repayment, but the money was afterwards entered in the cash book of the partnership; a joint commission being taken out against them, the commissioners refused to admit the obligee as a creditor upon the joint estate; but Lord King was of opinion he ought to be admitted, and directed accordingly (a). And where a creditor had lent money to two partners upon their joint notes, and upon the separate bonds of each, and the whole of the money was applied to the use of the partnership, consisting of them and several others, and the partners all agreed to consolidate the separate debts, and to consider them as the debts of the partnership, Lord Thurlow permitted the creditor to prove the whole amount against the joint estate of the partnership (b). So, in a more recent case (c), Lord Eldon said, that where money is raised by partners for partnership purposes, by means of bills drawn by one of the members of a partnership, the discounter can sustain a claim of proof against the joint estate in respect of the money received by the firm, although, as regards the bills themselves, there is not a joint legal contract. But if the credit be originally separate, the debt does not become joint from a mere subsequent application of the funds by the debtor to the uses of a partnership of which he is a member (d). For instance, money borrowed by (a) Ex parte Brown, cited 1 Atk. 225.

(b) Ex parte Clowes, 2 Bro. C. C. 595. S. C. Co. B. L. 260. (c) Ex parte Bolitho, Buck, 100.

(d) Ex parte Emly, 1 Rose, 65. In Ex parte Hunter, 1 Atk. 223, Lord Hardwicke thought that the mere receipt by the firm was sufficient to enable the creditor to stand in the place of the partner to whom the advance was actually made; and, in his right, to prove against the joint estate. But it seems clear that the law in this case was mistaken.

one partner to pay for an estate, creates only a separate debt; and it does not become joint, if, instead of being applied in payment of the estate, it be employed in discharging partnership debts (a). So, a loan of money to one partner, and a subsequent loan of it by the latter to the partnership, does not alter the nature of the original loan, so as to entitle the lender to consider himself a creditor of the firm (b). But, in the absence of proof of a separate contract, the application to partnership uses of money borrowed by one partner, is evidence to show that the debt is joint (c). And although to make the debt joint, there must be a contract, expressed or implied, by the firm, and the mere receipt of the money is not sufficient evidence from which to imply a contract, yet the justice of the case being that the firm which receives the money should pay the real proprietor, qui sentit commodum sentire debet et onus, it will not, perhaps, be the cause of much astonishment that any slight circumstances in addition to the receipt of the money, have been considered sufficient from which to raise an implied contract. Therefore in a case where a sole trader became indebted by bond, and took in a nominal partner, and some time afterwards a joint commission was issued, Lord Thurlow refused to permit the separate creditor to prove against the joint estate. But he said. that if any interest had been paid upon the bond by both, he should have considered it as adopting the debt, and making the partnership liable for it (d). And the courts seem to favour the presumption of the adoption by a new firm of the debts of the old (e). Thus, where new partners were taken into a trade, and it was agreed that the stock of, and debts due to, the old firm, should become the capital of the new partnership, and that the new firm should take

(a) Ex parte Wheatley, Co. B. L. 508, 9.

(b) Parkin v. Carruthers, 3 Esp. N. P. C. 248.

(e) Id. Ibid. Ex parte Peele, 6 Ves. 604,

upon themselves the payment of the debts of the old firm, and the new partnership became bankrupts, the creditors of the old were admitted to prove as joint creditors of the new firm (a). In such cases, however, there must be some evidence of accession on the part of the creditors to the agreement of the parties; because, without it, there cannot be a substitution of debtors. Therefore, where A., a trader, being indebted to several persons, entered into partnership with B., and brought his stock in trade into the partnership, and by the articles of copartnership it was agreed that the joint trade should pay those creditors of A. who were named in a schedule subjoined; it was held that a separate creditor of A., named in the shedule, whose assent, before the bankruptcy, to the agreement between the parties could not be shown, did not by the articles become a joint creditor of A. and B. (b). Where one partner, with the privity of his copartners, applies, to the purposes of the partnership, money with which he is separately entrusted, the debt may be proved against the joint estate; but if the application to the purposes of the partnership were made without the knowledge of the copartners, the debt can only be proved against the separate estate of the party guilty of the misapplication. The former part of this proposition is strongly corroborated by a recent decision. There one of three partners died intestate, leaving a widow and infant children, and the widow, having administered, agreed with the surviving partners, that the intestate's share of the partnership property should continue in the firm, of which she constituted a member, for a term of years, and the firm became bankrupts. Lord Eldon observed, that "the administratrix committed a breach of trust by continuing the money in the trade; and the partners, knowing that a certain

(a) Ex parte Peele, supra. Ex parte Bingham, Co. B. L. 509. In re Staples, Ibid. Ex parte Clowes, supra.

(b) Ex parte Williams, Bu k, 13. Ex parte Freeman, Ibid. 471. Ex parte Fry, 1 Glyn and James, 96. But see Mont. Dig. of New Decis. in Bank. 2d part, p. 71. and 3d part, p. 126.

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